15 August 2016

Non-disclosure – the first step to commercial success?

You have a great commercial idea or invention and you need to see if it actually works in practice – how do you make sure that the people who will make it real and enable you to test it do not simply steal your idea and take your dreamed-of profits for themselves?

The first formal step in the working relationship between the holder of such commercially sensitive or confidential information and the recipient of that information is often a non-disclosure agreement (NDA). This sets out the terms under which you discuss confidential information and limits the uses to which it can be put.

David Ashcroft, consultant to Harrison Clark Rickerbys’ commercial and defence sectors, knows from his long experience of NDAs that they are not the complete solution to protecting your information. He said: “Essentially, you should not be sharing information with someone who you don’t trust. Doing your due diligence, researching their commercial reputation, understanding their approach to business – all of these should come first. An NDA will hopefully lead to a commercial contract of substance, and a well-drafted one can form the start of the framework for your working relationship.”

A good NDA restricts the use of the ideas and information to a specific purpose, set out as precisely as possible. It also needs to cover the fact that your information might need to be shared within the other company – with employees, for instance. If the firm you are approaching asks you to agree that they do not have a duty to keep your ideas or information confidential, that should set alarm bells ringing.

When you are considering how to protect your information, you also need to remember that conversations with banks, financial institutions, accountants or marketing agencies, are not automatically confidential; it’s worth checking their policies before you start sharing information with them.

If both you and the other firm are disclosing information, for example before setting up a joint venture, the NDA is mutual, rather than unilateral – make sure that it serves your interests as well as it serves theirs. Taking advice on drafting an NDA is crucial – it not only needs to protect you as far as possible but also needs to be effective in all the relevant jurisdictions. Since the law differs even between the UK’s regions, legal expertise is essential and if courts in other countries are involved, it can be very complex.

Don’t disclose your ideas or information until the recipient has signed and returned the NDA – without it, you are taking the risk that others could use your ideas or information without your permission. You should also record the information you share, whether in meetings or presentations, on the phone or by email.

Do bear in mind that public bodies, such as universities and government departments, have to make information available to the public if they receive a Freedom of Information request. This might well affect the confidential information you share with them.

David Ashcroft said: “If you have shareholders or trustees, they will quite rightly expect you to have an NDA in place at the start of a new commercial relationship – it is, at the very least, an expression of good faith. Breaches of NDAs are dealt with via a claim of damages and an injunction initially, but there is no replacement for doing your research and dealing with people that you trust.”